CFTC Settles Wheat Manipulation Case against Kraft and Mondelēz

On August 14, 2019, the U.S. District Court for the Northern District of Illinois entered a consent order (the “Consent Order”)—agreed to by the U.S. Commodity Futures Trading Commission (the “CFTC”), Kraft Foods Group Inc. (“Kraft”) and Mondelēz Global LLC (“Mondelēz”)—to resolve long-running market manipulation litigation between the parties.

The Consent Order relates to the CFTC’s 2015 complaint, which alleged that Kraft and Mondelēz (which split off from Kraft in 2012): (i) used or attempted to use a manipulative or deceptive device in connection with the December 2011 wheat futures contract traded on the Chicago Board of Trade (the “December 2011 Contract”); (ii) manipulated or attempted to manipulate the price of the December 2011 Contract and of cash wheat; (iii) unlawfully held December 2011 wheat futures positions in excess of speculative position limits; and (iv) engaged in wash sales or fictitious sales by trading both sides of certain contracts in violation of the Commodity Exchange Act and CFTC Regulations. According to the CFTC’s complaint, the companies’ alleged manipulative strategy implicated approximately $90 million in wheat futures contracts.

Under the Consent Order, the companies agreed to pay a civil monetary penalty of $16 million and also agreed to the entry of an injunction that would prohibit them from engaging in any future violations of various anti-manipulation provisions of the Commodity Exchange Act and CFTC Regulations. The Consent Order, however, contains no findings of fact or conclusions of law and Kraft and Mondelēz denied each of the allegations against them. This outcome for the CFTC comes after Donald Wilson and DRW Investments LLC won a decision last November against the CFTC in another long-running litigation involving alleged market manipulation. Following that decision, former CFTC Chairman J. Christopher Giancarlo said that, despite the loss, the CFTC would “continue to vigorously enforce the Commission’s anti-manipulation provisions and to prosecute cases through trial where necessary.”

As part of the Kraft/Mondelēz settlement, the parties agreed to an unusual provision that they would not make any public statements about the case, except in connection with a legal proceeding, testimony or court order or to refer to public documents regarding the case. Shortly following the entry of the Consent Order, the CFTC, its Chairman, Heath P. Tarbert, and two Commissioners, Dan M. Berkovitz and Rostin Behnam, made an announcement and other statements about the case that were published to the CFTC’s website. Kraft and Mondelēz promptly challenged these statements, filing a partially redacted motion on August 16 that claims that the statements violated the Consent Order and that they were in some instances misleading or false (for example, the motion asserts that the CFTC falsely stated that the $16 million penalty was three times Kraft’s and Mondelēz’s alleged gain). In their motion, the companies requested civil sanctions and for the CFTC and Commissioners Berkovitz and Behnam to be found in contempt of court, among other relief. An emergency status hearing with respect to the alleged violation took place on August 19 and an evidentiary hearing has been set for September 12, where the CFTC’s Enforcement Division Director, James McDonald, Chairman Tarbert, and Commissioners Berkovitz and Benham have each been ordered to appear in person and to provide live testimony if needed.

In response to the hearing on August 19, the CFTC voluntarily removed the disputed statements from its website.

We will continue to track this case and provide updates as it progresses.

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